AIM Industry Report 2017/18

68 69 “Future Brexit negotiations may have an impact on the market, but increasing the number of overseas IPOs on AIM will soften that.” — LAURENCE SACKER, UHY HACKER YOUNG Exit deal fee was historically slightly more popular than initial deal fee, with 23% of historical offers quoting the charge. But the increase in popularity of the initial deal fee in 2016/17 was more than offset with a drop in offers applying an exit deal fee to 17% in 2016/17. Nevertheless, the average exit deal fee stated in the past was 0.26% and it decreased to 0.18% in 2016/17. It is worth highlighting that some managers charge a fixed amount for each transaction; this means the larger the order the cheaper the dealing fee on a percentage basis, so for such a fee structure it is better to trade in large amounts. ANNUAL ADMIN FEE The last type of fee we are going to discuss is annual admin fee. Annual admin fee is payable to a custodian or administrator for administering the investment. It is the least common type fee of quoted by managers as none of the new offers charge this fee, and merely 5% of historical offered quoted it. The annual admin fees are significantly lower than initial charges and AMCs. The highest admin fee quoted was 0.5% and the average value for historical offers is only 0.02%. OTHER KEY INVESTMENT METRICS Target Returns Only four offers in our register (historic and 2016/17) explicitly specified a target return. Although company earnings can be modelled and forecasted, their share prices are solely determined by buying and selling activities in the market. Thus, most managers don’t specify a numerical return target, instead, a number of managers set outperforming the FTSE AIM Index as their return target. Minimum Subscription The average minimum subscription of new offers is £27,500, which is just over half of the average value for historical offers (£51,205). This is because 2016/17 saw a higher proportion of VCT products in the market and they typically have significantly lower minimum subscriptions than other types of investment wrapper. Another reason that explains the lower average is that the number of IHT ISA services increased this year as the minimum subscription level of this type of service typically equals the ISA allowance, which is lower than the minimum initial investment requirement of an average non-ISA BR offer. In addition, we can see that it is not just the average value that decreased. Other key statistics, such as mode and median, also dropped. Therefore, we can conclude that the minimum subscription of AIM-based products has fallen, and it means more and more retail investors are now able to benefit from the tax reliefs that are offered by EIS and VCT via this route. Also, as mentioned in our BR report, with AIM-based BR products lowering the minimum subscription restriction, people with only a relatively small amount of IHT liability can now utilise BR offerings available on AIM. This is important as a client with only £20,000 of assets liable to a charge to IHT may find other IHT planning methods are either too expensive or too time consuming to put in place. Instead, the client can simply invest his IHT-liable asset into an AIM BR product that has a low initial entry requirement. Furthermore, this type of service is also generally ISA-qualifying, meaning all the returns generated will be CGT and income tax free. The same conclusion applies to VCTs, for which £2,000 and £5,000 are the most quoted minimum subscription levels; this means an investor doesn’t need to be a HNW to benefit from the tax reliefs and other features of investing in VCTs. Having said that, it is important to ask whether the investment risks can be justified with a small amount of investment. MINIMUM SUBSCRIPTION AVERAGE MODE MIN MEDIAN MAX HISTORICAL OFFERS £51,205 £100,000 £2,000 £25,000 £500,000 2016/17 OFFERS £27,500 £20,000 £2,000 £17,500 £100,000 “Some managers are able to quote and meet an explicit dividend target by holding a group of companies that have a strong and stable dividend history.” CURRENT RAISE The table on the right shows us the size of these AIM-based products. We can see that the products vary greatly in size; the smallest historical offer on our register has only raised £500,000, while the largest has raised over half a billion! On average, an average offer in the past has raised about £74 million. At September 2017, an average 2016/17 offer had just under £9 million under management and the current raise at that date for those offers ranged from £750,000 to £20,000,000. From the variation in size we can note that the market is quite concentrated, with a few dominant providers holding a large percentage of market shares. As expected, younger funds tend to have a lower amount of fundraising, and larger funds have typically been in existence for some years. However, there are a few funds from the past which closed without meeting their fundraising targets. When looking at the whole BR market, we can also see that AIM products have gained significant popularity in recent years. According to our latest report on BR, the average fundraise for a 2016/17 BR offer was £1,816,667 and this is £8,907,042 for an AIM offer. In addition, the biggest 2016/17 AIM BR offer is about six times larger than the biggest 2016/17 BR offer. TARGET DIVIDEND AVERAGE MODE MIN MEDIAN MAX HISTORICAL OFFERS 4.65 5.00 1.80 5.00 6.00 2016/17 OFFERS 5.5 6.00 5.00 5.50 6.00 FUNDS RAISED PER OFFER AVERAGE MODE MEDIAN MAX HISTORICAL OFFERS £74,118,046 £500,000 £23,200,000 £600,440,000 2016/17 OFFERS £8,907,042 £750,000 £8,093,000 £20,000,000 DIVERSIFICATION Here, we will take a look at the level of diversification amongst AIM offers. As always, we use the target number of investee companies stated by the managers as a measure of diversification. We consider an offer with a larger number of investee companies as more diversified than an offer that holds fewer portfolio companies. The average number of investee companies held by 2016/17 AIM offers is 44, reflecting the higher proportion of VCTs in the AIM space; AIM VCTs typically hold a significantly higher number of investee companies in comparison to AIM BR services. AIM EIS offers hold the fewest number of companies on average. Other statistics also reveal that new offers are more diversified than historical offers. Among 2016/17 offers, the most diversified product has 94 investee companies in its portfolio, and the least diversified new product holds two more companies than the least diversified historical offer. However, we believe the figures don’t necessarily mean the managers are making these investment portfolios more diversified. Instead, this is due to this year’s market composition with its large proportion of AIM VCTs. TARGET DIVIDEND Unlike target return, which is not commonly stated by AIM managers, target dividend, however, is quoted by around a third of the offers (historic and 2016/17) including all AIM VCTs and a few AIM BR services. As highlighted in our AIM report last year, there are many companies on the AIM market which have a great track record of paying dividends. Therefore, some managers are able to quote and meet an explicit dividend target by holding a group of companies that have a strong and stable dividend history. It is worth highlighting that none of the AIM EIS products pay out dividends. The target dividends show a reduced range for 2016/17 offers – between 5% and 6%. This year the average value increased to 5.5% from 4.65%. Again, we think this is due to the higher proportion of AIM VCTs in the market this year. TARGET NUMBER OF INVESTEE COMPANIES HISTORICAL OFFERS 2016/17 OFFERS AVERAGE MINIMUM MEDIAN MAXIMUM 100 80 60 40 20 0